Working families with children are facing bigger shortfalls in their household budgets this year, despite an increase in the National Living Wage and tax cuts, according to the Joseph Rowntree Foundation’s authoritative annual report on living standards.

A return to inflation combined with a freeze in working benefits has caused the shortfall to increase for all low-income families with children over the past year. Single breadwinner and lone parent families are feeling the pinch the most.The Minimum Income Standard (MIS) update, carried out by the Centre for Research in Social Policy at Loughborough University, acts as a barometer of living standards for households on low incomes. It is based on what members of the public think people need to achieve a decent living standard; it is updated according to economic and policy changes.

A single person now needs to earn £17,900 a year to reach MIS; a dual-earner couple with two children need to earn £20,400 each; and a lone parent with a pre-school child must earn £25,900.

Weekly take home pay infographic
Working families being paid the national living wage are still worse off after a reduction in tax credits and increases in living costs, taxes and national insurance.

Whilst these families will be better off under Universal Credit, the vast majority of people will still have substantial shortfalls. The vast majority of people on low incomes remain on tax credits. Fuller details with a range of examples are given in the Notes to Editors.

Campbell Robb, chief executive of the independent Joseph Rowntree Foundation (JRF), said “Working families are facing bigger holes in their budgets worth hundreds of pounds, despite a higher National Living Wage and tax cuts. It means millions of families are facing a struggle to make ends meet as the cost of getting by in modern Britain rises ever higher. Struggling families tell us as well as juggling the bills, it’s things like after school clubs and swimming lessons that must be sacrificed to cover the essentials.

“With the Bank of England forecasting inflation will increase even higher this year, families are facing no respite. We need the Government to take action and ensure living standards do not fall backwards. Lifting the freeze on working-age benefits and tax credits must be the start along with allowing people to keep more of their earnings.”

Donald Hirsch, author of the report, said: “This year we have seen a return to inflation for the first time since the freeze in benefits and tax credits was introduced. It is clear from these results that this freeze is preventing better minimum wages from feeding through to improved family living standards. A particularly important feature of this is that for every extra pound earned, about 75p is typically lost by low earning families in additional tax and reduced tax credits or Universal Credit.  Unless the amount that you can earn before these credits are withdrawn rises along with prices and earnings, it will be very difficult to deliver the improved living standards for struggling families that have been promised.”